VIDEO: "Media houses, ad agencies - clueless about the future!"

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Koos Bekker, Chief Executive officer of Naspers, South Africa, during the Lessons from the New Champions session at the World Economic Forum on Africa 2011 held in Cape Town, 4-6 May 2011.

When Koos Bekker first became involved with Pay TV in the mid 1980s, Naspers was a grey company whose executives wore grey shoes and hung out with the National Party.

By the time he stepped down as CEO of Naspers earlier this year, Bekker had transformed the company into a multi-media behemoth operating in more than 130 countries and become a dollar billionaire himself in the process.

At the heart of his success, the recognition that English is not the world’s only language and a stunning investment in a Chinese internet company called Tencent. So what’s next for Koos Bekker - and how does he see the future of media and advertising?

How do you see media right now? Which platforms are up? Which are down?

"If you look at the recent past of media, all my predictions were wrong. If you could have predicted Twitter, I certainly couldn’t. Often the consumer reacts counter-intuitively. I guess the best is not to try to predict the future but just to adapt to it when it happens."

You have consumer insights because you worked in advertising early in your career?

"I studied law. No-one in my family had ever been in business. None even had a single business subject and I realised that I liked the field. So I went into advertising consciously to learn something about business. Advertising people are actually quite good in their analysis of the consumer, in the nuances. My first project in advertising was to research the gherkin and we discovered the ladies of Sea Point like it sweeter and spicier than the ladies of Newlands, which is a fundamental insight. I respect advertising people for that subtlety of distinguishing consumer tastes and I think it helped me later in business and in media, also."

The current advertising industry - how do you see that?

"Globally it’s the same. If you sit in an agency in New York, on Madison Avenue, or in Singapore, or in Ghana, your problems are exactly the same. Advertising is an interesting fraternity - it always struck me that the people are socially progressive - they dress in the most zippy way, but they are actually, as business people, quite conservative. They look at the past: they ask how were your statistics over the past 12 months, and then, with a delay of a further six months, project into the future. So advertising people are a curious bunch that looks as if they are preparing for the future but their window is actually on the past. The past, in media, has been a very poor predictor of the future. For example, if you had looked in your rear-view window in 2004, how would you have predicted the coming of Facebook? Or Instagram? It’s pretty impossible. So advertising has that tension: you need to be reliant on data that was collected somewhere in the past, while your only means of predicting where your client will be next year is by extrapolating that data forward. But recent history tells you that that’s not the way the world works. The world works with leaps of invention that are often counter-intuitive and certainly unexpected."

So how should advertisers be re-looking at their relationships with media houses?

(Laughs) "I think it’s pretty tough, because the media houses are clueless. The average media company in the world is in pretty poor shape. A few will survive. A few newspapers will make the transition from a print product to an electronic product as the New York Times and the Wall Street Journal have done. And the Financial Times, which is perhaps the most successful example. In South Africa, you might have a few electronic news services - News24 and a couple of others - making it. But most media houses are as clueless as ad agencies."

Your own included - Naspers?

"That would be perhaps a little harsh but it’s approximately correct. The problem is that  they are grappling with existing media that still make money, an uncertain and very rapidly changing future and trying to make the transition. Media24 itself is trying to move its print product online, but the moment you do that, you realise it’s not simply a transition. Something happens. Online, the consumer wants to talk back and participate more. He also wants to contribute, so when he’s at an accident scene, he’d like to send you the latest details and his pal would like to read it. It’s like Facebook, because the consumer generates the information and consumes it at the same time. The problem with media is that they often have a prophetic mission, a Great Editor who interprets the world and tells the world what it should look like. But that’s not what consumers want anymore. They want to participate in the discussion. So for a media house to make the transition to say ‘the consumer out there is not just the recipient of my wisdom but a co-creator of content,’…that’s interesting, but is also hard to do."

Rupert Murdoch, interviewed by Fortune recently, suggests that within 10 to 20 years print as we know it will be dead. Do you agree?

"Totally, because of the economics of print. Take a newspaper with a circulation of 100,000 copies. You have a fixed cost and as your circulation falls - 90,000, 80,000, and so on - you hit a certain point where - let’s say 50,000 - the business goes dead. You can’t go to 40,000 because you’re breaking through your cost structure. So what will happen is that print products will progressively, each one after the other, reach that point and stop printing. But on the web, there will be a new generation of news interpreters. You will read the Financial Times in the physical copy - which I still prefer, if I can get it in my hotel. If you can’t, you’ll default to the web, which will become more and more useful and interactive and will start anticipating my needs.  I might get to the point where I will actually say my hotel stocks the physical copy but do I want that? Or do I want to read it on my iPad - I think the iPad is more useful? So, both because the usefulness of the electronic size increases all the time and because print will hit the point at which its fixed cost cannot be reduced any further and consequently has to stop publishing, I think in 10 to 20 years, physical print - at least newspapers - will disappear.  Probably most magazines, too."

Digital convergence is very much on everyone’s lips - where are media houses heading and what does this mean for advertisers?

"Most media houses will simply disappear. Like the wagon-makers when the car came around. They didn’t progress to become car-makers, they simply disappeared from the economy and I think most media houses will go the same route. Another interesting phenomenon is that our competitors now are global. We’re not thinking about Times Media or Caxton, we’re thinking about Google or Facebook and Amazon in e-commerce. The same will probably happen in advertising. The advertising fraternity will worry less about the local names and more look at the global scene and say, ‘How do I play my product in this context?’"

The big buzz-phrase right now is content creation. What’s your take on that - does the brand and the story simply merge?

"When TV started in the 50s in the US, the typical soap-opera was manufactured by the soap-making companies. They commissioned the actors, they wrote the story-line and they produced it and then they gave it to the TV company. Over time, the feeling emerged that this created sort of a captive situation where the soap company has an incentive to over-sell its product or maybe create unbelievable story lines to work in its own consumer goods. The power then moved to the networks. NBC would commission a team to create a soap opera and then Procter & Gamble would place an ad inside this third-party created content. Interestingly, it’s now moving back because the consumer has found ways, through technology, of zapping our ads. There’s a great incentive to work products back into the text and the trick will be to do it without disrupting the narrative flow, to make it a good story and yet to work ads in. It’s happening. In sport - we know some sport is recorded and then played back and in the process the ad is lost - just look at what your screen looks like: you’ll have the Premier League or the PSL, with Kaiser Chiefs against Pirates - and then there’s a squeeze-back with an ad creeping in. That you can’t edit out. So I think the intrusion of commercial products into copy is almost inevitable now that the consumer can zap at will. The Personal Video Recorder (PVR) will increase this trend."

Where does big data fit into this?

"We don’t quite know. Just consider this: we know, if you buy from us, an awful amount about you. Not only what you buy, but what you research, which is commercially useful but socially ambiguous. An example - I read a lot of history books, so if kalahari.com detects that I have a love of this theme, and there’s a new book about General Patton, and they toss it at me, I’m actually appreciative. It’s directed at me and reflects my taste - I like it. But let’s say I have cancer. Kalahari would also know that. Why? Because of the research I do, and think about what Google knows about you and what Facebook knows about you. If someone now starts sending me cancer treatments, I would quickly detect where this comes from and feel that it’s a very severe intrusion on my privacy. So e-commerce and search companies know an awful amount about how my family is constructed, who has which problem in the household, who has which interests, who searches which sites. Over time we’ll find a way to extract the commercial element of that and make it more useful for the consumer, but also giving a certain amount of privacy protection. I guess the regulators are going to be active in this field."

And what about media mobility?

"Mobile phones will become the main form of communicating with the public. Both for media companies and for advertisers. Just to give you an idea: two years ago we had a classified business in India called OLX - the biggest of its kind there. All the searches were done on PCs. Today, the business has grown to about 60-70 million page views per day - it’s gigantic - and 70 percent of that is on mobile and it’s all the growth - every thousand new users we add is on mobile. Soon it will be 80 to 90 percent of the entire service on mobile."

Are all mobile consumers the same?

"Definitely not and the quality of mobile advertising is often pretty poor. Contrast these two scenes: I pick up my newspaper this morning and I immerse myself in it for 20 minutes. The quality of my time is particularly high, because I’m devoted to the newspaper, I’m looking at every page and absorbing a lot of advertising and I’m not distracted. But consider the position on a mobile phone: I pick up my phone because I get a call. After that I quickly check a share price or a Facebook update. I spend a few seconds on that page and anything intruding on the page is an irritant, so the quality of my time is really poor. The second thing is the quality of the audience. The newspaper audience tends to be somewhat older, higher income, better educated. The mobile phone? Every high school kid now has a mobile phone, so the quality of an advertisement placed in a newspaper differs completely from one appearing on a mobile phone. As an advertiser, it’s a tough call to make. You have to trade numbers with quality in terms of both attention span and intensity of focus and quality of audience. It’s a tough call."

Globalisation and technology are the key drivers?

"Indeed. And technology tends to be universal but taste and content tend to be a bit local. We have great success in Supersport with the Premier League. That’s an intensely local product which is unsaleable in America, but the technology we use to capture it is about the same globally. So you’ll find that we use the same means to communicate but the content of what we communicate is locally driven. Here’s another example: the whole structure of Twitter is global, it’s quite a centralised company. But if you look at the content, it’s in every possible language in the world. It’s also interesting that advertising has to span both: it has to understand the local technologies but it has to be able to give it a local flavour to be able to sell it effectively."

Your own business philosophy seems to be “invest in an awful lot of things and hope some of them will come off spectacularly” And of course, some of them have …

"Yes, and some have failed. We have also failed spectacularly."

That’s classic venture capitalism?

"Yes, but you can invest in different phases. If you are a true angel investor, you invest when someone has a mere idea, two assistants and no revenue. Then your failure rate is 80 percent or so. That’s a high price. But wait till a company is successful, it’s too late and there’s no money to be made. So we tend to move in when there are five to 20 employees, some revenue but no great profit and we take around 30 percent of the business. We like backing entrepreneurs that stay in the business. So Google, typically, would buy out 100 percent of the company, integrate it into big Google, which is valid for them; we tend to back a number of entrepreneurs that we believe in and stay with them for the next 20 years. Our failure rate will be 40 to 50 percent but the winners are there to make up for the losers."

Was that how you approached Tencent - which is, of course, the jewel in Naspers’ crown?

"Yes. Our first venture in China failed spectacularly. We set up an ISP in Beijing and within 18 months had lost $80 million and fired 150 people. Then we analysed our disaster and said we couldn’t do worse than this, what did we do wrong? The answer was five western managers that cost three times as much as the Chinese and didn’t work Saturdays - so the next time we did the opposite. We tried to find the best local team, backed them and left them alone to run the business and just supported  them. We’ve tried to learn from failure. If we go into a venture and it doesn’t work, we try to analyse what caused it to fail and to fix it next time round."

You’ve taken Naspers from newspapers to Pay TV, then the Internet. Your successor is a specialist in e-commerce. What does that tell us about the company’s future - Naspers and Media24?

"For several years still, we’ll grow in e-commerce. You know, retailing is a very old profession. Go back 6,000 years to a little hovel beside the rivers of Babylon - someone was trading - and it has stayed more or less person-to-person up to now. Now there’s a transition to the internet. E-commerce is a fundamental shift in the way we live and it will dominate our lives for several years still. In the UK now, about 11 to 12 percent of all the retail is happening through e-commerce. The consequence is not always happy. From a consumer point of view, I order from Waitrose, I receive my groceries tomorrow morning, in my fridge, it’s very convenient. But what happens to the High Street?  The local grocer closes down and society has to adjust to that change. E-commerce is going to be deeply disruptive and for the next few years, we’ll certainly push as hard as we can into that - at least the areas we can access.

For Africa, surely, Pay TV still has long legs?

Yes, and I have realised that the main things is Pay TV is actually a form of e-commerce. If you think about the US, how do you access a movie now? You can either go to the movie theatre, or buy the DVD, or pay for it in various ways as a discrete item on the internet, or subscribe monthly to Netflix and get it there, or you can subscribe to Home Box Office - a type of Pay TV service. You could even wait for open TV. But all of it’s a way of commerce: it’s the movie made in Hollywood, brought to you by someone and increasingly the sale is electronic. So Pay TV in its current form is already a form of e-commerce and as we move to the PVR, it will even become more so. I also realise now that the PVR is immensely powerful, because it takes the linear TV and the way we programme it in Randburg, breaks it up and gives it to you in a computer in your home. You now sit there and say, ‘Now, this Modern Family and I like it. Let me watch episode three’. Out of the control of the programmers completely. Certain problems occur - you can strip out our ads. So pay TV is already a form of e-commerce."

You’re off on sabbatical for a year - looking for the future, the next big thing. How do you predict the future and how will you know when you’ve found it?

(Laughs) "I despair of predicting the future! When I was young and even more arrogant than today, I thought that if I sat down and applied enough brain power and research, I could predict what would happen next. Now, I think it’s impossible. Have you ever met anyone who predicted - let’s say - Twitter? I haven’t. I didn’t predict it. It happened and then you respond. Or Instagram. Or any of these great inventions. The best a media owner or an ad agency can do is to be alert to what happens around you and the moment a success appears, to seize upon it and to apply it. Another depressing thing is that all the useful stuff gets invented by people under the age of 35. People of my age produce nothing. The real inventive stuff happens among young people who take huge risks. And most fail. I would say about 90 percent of companies now formed actually collapse within 18 months - all involving young people. But sometimes they succeed and for me, one of the nicest things travelling around the world is talking to these people, in places like India and China, because they’ve got dreams. I know some of those dreams will be frustrated but some will come true. For me it’s one of the most exhilarating things - to sit with five guys around a table and they’ve got ideas and they’re going to put everything, their lives, their futures, the little money they have, they’re going to pour everything into this dream. Sometimes you get a glimmer - maybe this team will succeed? That for me is tremendously exciting!"